4 ms·

I think the key to picking individual stocks is the ability to evaluate companies in both a financial/quantitative and qualitative manner. This is easier said

I think the key to picking individual stocks is the ability to evaluate companies in both a financial/quantitative and qualitative manner. This is easier said than done. But by no means impossible. Even Warren Buffett has said multiple times that if one has the skill to evaluate companies than they should pick individual companies and not choose an index fund because they will do far better with picking individual stocks. The problem is the vast majority of people are not skilled in evaluating companies and that's why Warren Buffett suggests them to choose a low-cost index fund. I've chosen the path of picking individual stocks and I've done very well with it. But I have a deep background in the many skills required to analyze companies. And also it takes a great deal of time to keep updated on the companies I follow.

kevinskii 12y ago
I have a very bright friend who works for a hedge fund. He's a Stanford engineering grad with an MBA from a top 10 school, and he had considerable success in his engineering career before shifting to finance several years ago. He spends most of his waking life analyzing about six medtech companies. That's right, only six. One might assume that he knows a few things about each company. And yet, whenever he recommends buying or selling one of their stocks, he's wrong almost exactly 50% of the time. (I actually track his predictions.) You might be good at picking individual stocks, but I don't think he is. And if he isn't, I don't think most people would be either--myself included. I'll stick to the index funds.
- dave1619 12y ago
  I don't know your friend so I can't say why he's right/wrong 50% of the time. But I'd say that's pretty typical with analysts in the financial industry. It's really tough to blend quantitative and qualitative analysis together, but IMO this is a requirement to make consistently good investment choices. I think this is the secret behind Warren Buffett. Most of Wall Street though tends to focus on the quantitative (and only a few quarters out) and they tend to be highly influenced by each other, trends and sentiment. Again, I generally agree with the advice of going with low-cost index funds for the vast majority of people. However, I do think that there are some people (albeit not many) with the right background, skills, training and commitment who can consistently beat the markets (ie., this was the thesis of Peter Lynch's book Beating the Street).
- mrow84 12y ago
  I'm totally with you on personally sticking with indexed funds, but, out of a sense of charity, could it not be the case that the average cost of your friend's failures is lower than the average returns on his successes, so that he is still getting above average overall returns? I guess I just feel bad for him :-|.
tome 12y ago
> I have a deep background in the many skills required to analyze companies What would you say those skills are?
- dave1619 12y ago
  I'd say the most important are: 1. broad and deep business background (product, design, marketing, management, strategy, finances, market analysis, etc) 2. due diligence skills (ie., knowing how to evaluate a company, product, leadership, market/competitive position, etc) 3. skills in evaluating a company both quantitatively and qualitatively 4. skills in technical analysis of stocks

kevinskii 12y ago

I have a very bright friend who works for a hedge fund. He's a Stanford engineering grad with an MBA from a top 10 school, and he had considerable success in his engineering career before shifting to finance several years ago. He spends most of his waking life analyzing about six medtech companies. That's right, only six. One might assume that he knows a few things about each company. And yet, whenever he recommends buying or selling one of their stocks, he's wrong almost exactly 50% of the time. (I actually track his predictions.) You might be good at picking individual stocks, but I don't think he is. And if he isn't, I don't think most people would be either--myself included. I'll stick to the index funds.

dave1619 12y ago
I don't know your friend so I can't say why he's right/wrong 50% of the time. But I'd say that's pretty typical with analysts in the financial industry. It's really tough to blend quantitative and qualitative analysis together, but IMO this is a requirement to make consistently good investment choices. I think this is the secret behind Warren Buffett. Most of Wall Street though tends to focus on the quantitative (and only a few quarters out) and they tend to be highly influenced by each other, trends and sentiment. Again, I generally agree with the advice of going with low-cost index funds for the vast majority of people. However, I do think that there are some people (albeit not many) with the right background, skills, training and commitment who can consistently beat the markets (ie., this was the thesis of Peter Lynch's book Beating the Street).
mrow84 12y ago
I'm totally with you on personally sticking with indexed funds, but, out of a sense of charity, could it not be the case that the average cost of your friend's failures is lower than the average returns on his successes, so that he is still getting above average overall returns? I guess I just feel bad for him :-|.

tome 12y ago

> I have a deep background in the many skills required to analyze companies What would you say those skills are?

dave1619 12y ago
I'd say the most important are: 1. broad and deep business background (product, design, marketing, management, strategy, finances, market analysis, etc) 2. due diligence skills (ie., knowing how to evaluate a company, product, leadership, market/competitive position, etc) 3. skills in evaluating a company both quantitatively and qualitatively 4. skills in technical analysis of stocks